COVID-19: VAT and self assessment payment deferral
Updated 6 April: The UK government is supporting businesses during the coronavirus pandemic by deferring VAT and self assessment payments. ICAEW's Tax Faculty outlines how the deferral will work.
Updated 6 April to include accounting advanced payments in the list of payments that the deferral applies to.
No application is required, but direct debit mandates need to be cancelled. Returns should still be filed on time. No penalties or interest for late payment will be charged in the deferral period.
VAT
The deferral for VAT payments applies from 20 March 2020 until 30 June 2020. All UK business are eligible but the deferral does not apply to VAT MOSS payments. HMRC has now confirmed that this includes non-established businesses registered for VAT in the UK.
This will generally mean the deferral of one quarter’s VAT: the payment due on 7 April, 7 May or 7 June 2020 or the monthly payments due on each of these dates. HMRC has confirmed that the deferral also applies to annual accounting advanced payments and payments on account, which are normally due on the last day of the second and third months in any VAT quarter for affected businesses. Consequently, payments on account that are due to be paid on 31 March, 30 April, 31 May and 30 June can be deferred.
HMRC has confirmed that businesses will need to cancel their direct debits. Businesses that have a direct debit mandate in place to pay their VAT and wish to defer payment will need to contact their bank to cancel that mandate. This needs to be done before the direct debit is due to be collected. Businesses will also need to remember to reinstate their direct debit mandate once the deferral is over. Agents cannot set up direct debit mandates on behalf of taxpayers.
Taxpayers have until 31 March 2021 to pay any liabilities that accumulate during the deferral period and will need to make arrangements to pay this accumulated VAT.
VAT refunds and reclaims will be paid by HMRC as normal.
Businesses should continue to file their VAT returns by the due date.
Income tax
The deferral for income tax self assessment applies to the second payment on account for 2019/20 due on 31 July 2020 which is deferred until 31 January 2021. This is an automatic offer and no application is required.
Following some initial confusion HMRC has now confirmed that the deferral applies to all tax payers. It is not necessary to be self-employed to be eligible for the deferral.
The deferral is optional - some taxpayers may prefer to make the July payment to avoid a larger payment in January 2021.
Very few taxpayers pay their self assessment liabilities by direct debit because the system requires a separate direct debit mandate to be set up for each individual payment. Any taxpayer that wishes to defer payment and has already set up a direct debit mandate for the payment on account due on 31 July 2020 should cancel it by contacting the bank.
Self assessment returns should still be filed by their due date and it may be advantageous to file the 2019/20 return as soon as possible after 5 April 2020. This might facilitate planning for the tax payment due in January 2021 and perhaps crystallise any refund due, including as a result of any loss relief available.